- EUR/USD trims intraday gains following its run-up to fresh high since late February.
- US dollar bounces off two-month low after Biden sounds tough on China, Russia while urging Congress to pass the stimulus.
- US inflation expectations jump to multi-year top, suggesting reflation fears, greenback strength despite Fed’s rejection of tapering.
- Germany’s headline inflation, preliminary readings of US Q1 GDP will offer fresh impetus.
EUR/USD eases from multi-day top to 1.2130, up 0.05% intraday while heading into Thursday’s European session. US President Joe Biden’s first ‘Joint Congress’ address could be traced for the currency major pair’s latest pullback. On the same line is the market’s cautious sentiment ahead of Germany’s key inflation figures and the US Q1 GDP.
Reflation fears, Biden’s tough stand pulls back USD…
As per the latest data from St. Louis Federal Reserve, the US inflation expectations, as measured by the 10-year breakeven inflation rate, jumped to 2.41% on Wednesday to hit the highest level since April 2013.
While the leading indicator for the price pressure keeps reflation fears on the table, also backing the safe-haven assets like the US dollar and gold, the US Federal Reserve (Fed) defends easy money policy. Not only the hopes of extended monetary easing from the Fed but Biden’s mammoth fiscal stimulus also likely propel the inflation further towards the north, which in turn could recall reflation fears and the US dollar’s much-awaited recovery.
US President Biden urged Congress back his $4.0 trillion spendings and let the wealthiest American pay for it. The Democratic leader surprisingly sounds tough on Russia and China during his first address to the US policymakers’ lot.
On a different page, China’s rush for stronger ties in South Asia and the UK’s formal recognition to the European Union (EU) ambassador for the first time after Brexit back the market optimism amid a light calendar in Asia and off in Japan.
Amid these plays, stock futures remain bid but the US Treasury yields look for fresh clues. Further, the US dollar index (DXY) reverses the early Asian losses while bouncing off the lowest since February 26.
Looking forward, the preliminary reading of the German Harmonized Index of Consumer Prices for April, expected to stay unchanged around 2.0% YoY, will be initially important as German policymakers have been trying to renew tapering talks. Ahead of that the European Central Bank (ECB) Vice President Luis De Guindos’ speech and second-tier sentiment data could offer intermediate direction to the EUR/USD prices. It should, however, be noted that the first forecasts for the US Q1 GDP will be the key as the headline growth figure is expected to jump from 4.3% to 6.5% YoY.
Read: US Q1 GDP Preview: Eyes on inflation and FOMC as economic recovery gathers steam
Technical analysis
Not only the sustained trading beyond 100-day SMA but the quote’s successful upside break of a descending resistance line from January 06, now support, as well as 61.8% Fibonacci retracement of January-March declines, also back the EUR/USD bulls.
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